The Gauteng Division of the High Court recently delivered a judgment in the matter of The Commissioner for the South African Revenue Service and Logikal Consulting (Pty) Ltd and Others, Case No. 96768/2016, in which the court had to interpret, among other things, what comprises a “class” of creditors as contemplated in s155(2) of the Companies Act, No 71 of 2008.
The promulgation of the Companies Act 2008 in South Africa saw the introduction of a company rehabilitation process termed 'business rescue'. As in many other jurisdictions, a company under business rescue enjoys a temporary moratorium on the prosecution of claims with a view to allowing the distressed company breathing space to reverse its financial difficulties and avoid full-scale liquidation.
Following on from our previous tax alerts regarding the various proposed amendments pursuant to the draft Taxation Laws Amendment Bill, 2018 (draft TLAB) published for public comment on 17 July 2018, we discuss in this Tax Alert another significant proposed legislative amendment, specifically related to the allowance for doubtful debts set out in s11(j) of the Income Tax Act, No 58 of 1962 (Act).
We identify and explain four of the court’s key findings below:
1. “In all matters where execution is sought against a primary residence, the entire claim, including the monetary judgment, must be adjudicated at the same time”.
It has become a common phenomenon that applications are brought to put into business rescue, companies which are already in liquidation – sometimes long after the liquidation commenced.
This raises some interesting questions about whether employees and trade unions remain affected persons for the purposes of such a business rescue application, given that in terms of section 38 of the Insolvency Act (24 of 1936), all employment contracts are deemed to be cancelled within 45 days after the appointment of a final liquidator.
Section 131(6)
It’s an open secret that the commendable goals envisaged by the legislature with the introduction of the business rescue proceedings in Chapter 6 of our Companies Act are being hampered as a result of poorly drafted statutory provisions that govern the business rescue process. Section 141(2)(a)(ii) is however not one of these vague provisions.
A recent development in the ever-evolving jurisprudence associated with business rescue proceedings relates to the remuneration of the business rescue practitioner in the event that a business rescue fails. The Supreme Court of Appeal in Diener N.O. v Minister of Justice (926/2016) [2017] ZASCA 180 has recently confirmed that the practitioner’s fees do not hold a ‘super preference’ in a liquidation scenario and the practitioner is required to prove a claim against the insolvent estate like all other creditors.
A recent development in the ever-evolving jurisprudence associated with business rescue proceedings relates to the remuneration of the business rescue practitioner in the event that a business rescue fails. The Supreme Court of Appeal in Diener N.O. v Minister of Justice (926/2016) [2017] ZASCA 180 has recently confirmed that the practitioner’s fees do not hold a ‘super preference’ in a liquidation scenario and the practitioner is required to prove a claim against the insolvent estate like all other creditors.
The Supreme Court of Appeal provided clarity in Diener N.O. v Minister of Justice & Others (926/2016) regarding the ranking of the business rescue practitioner’s (BRP) claim for remuneration and expenses. The SCA also clarified whether such claim was conferred a “super preference” over all creditors, secured and unsecured in subsequent liquidation proceedings.
The case of Uganda Telecom Limited v Ondama Sammuel t/a Alaka & Co (Miscellaneous Application No. 12 of 2018) presented the Ugandan courts with an opportunity to test the provisions of the Insolvency Act, 2011 in the context of an ongoing company administration process. The case shows how the Ugandan legal system operates to protect a debtor under administration from legal proceedings by its creditors. Uganda Telecom Limited (“UTL”) has been under administration since May 2017.